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Bypassed by international trade deals

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This year Japan is playing host to the meetings of the Asia Pacific Economic Cooperation group.  APEC is of course the region’s leading talk shop for trade and investment.  One big problem: Japan is increasingly letting itself be bypassed in regional trade deals.

Although a newcomer to free trade agreements (FTAs), the Asia Pacific region has seen a frenzy of activity over the past decade.  Most of these FTAs centre around ASEAN.  For example, China, Japan and Korea each have FTAs with ASEAN.  

One factor has clearly been the blockage in the global Doha trade talks.  But also Asia’s dynamic economies have greater ambition in trade liberalization than the global talks, pushed along by business leaders who have built supply chains all over the region.  Many of the trade deals are now called economic partnership agreements as they include all sorts of things like trade facilitation, migration, development assistance and so on.

Where to next?  Some observers see a neat progressive build up as the best way ahead.  China, Japan and Korea could negotiate an FTA.  This could be combined with these countries’ FTAs with ASEAN.  Australia, India and New Zealand could be added on, followed by North America and Europe.

A great idea, but it ain’t gonna happen like that!

Korea has already broken ranks.  It has just signed an FTA with the EU.  Its FTA with the US will now likely be approved by the US Congress thanks to the Republican victory.  Following Taiwan’s recent FTA with China, Korea is also hot to get an FTA with China lest its enterprises lose out to their Taiwanese competitors.  And Australian foreign minister Kevin Rudd has just announced that an FTA could be on the cards with Korea next year.

While all this has been going on, Japan has been caught napping.  Political infighting and childish squabbling with China have been absorbing too much energy.

For example, a proposed FTA with China and Korea has been bogged down in study groups for years because Japan wants to protect its agriculture sector and it is afraid of opening to China.  Free trade discussions with Australia have similarly got nowhere because of the agriculture question.  The EU refuses to have serious FTA talks with Japan unless non-tariff barriers are put on the table.

And now the "Trans-Pacific Partnership" has jumped to the top of the trade agenda.  The original agreement was Lilliputian in scale with Brunei, Chile, New Zealand and Singapore signing up in 2005.  But now Australia, Malaysia, Peru, United States, and Vietnam, are currently negotiating to join the group.

This no soft trade agreement, with lots of exemptions -- the type that Japan prefers, and like the one it just signed with India.  It is a high standards agreement covering the works, trade in goods, rules of origin, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, trade in services, intellectual property, government procurement and competition policy.

Japan has now expressed interest in the TPP, but it is predictably wobbling.  The Japanese business community is pushing the government to get serious, but agriculture and non-tariff barriers are the sticking points.

This is a critical moment for Japan.  Signing up to this agreement would be one way to show the world that the Japanese economy is in a different league from China and that Japan can keep pace with Korea. 

In this regard, it is instructive to read the recent interview in The Korea Times with Japanese Ambassador Masatoshi Muto.  According to Muto, "The Japanese tend to start preparations very early, but ... Koreans are capable of completing tasks fast, no matter how limited the time may be ..." Muto noted that Japan as APEC 2010 Chair should emulate Korea's vitality.

Ambassador Muto also stressed that Japanese conglomerates are feeling increasing pressure to catch up with Korean companies, such as Samsung and Hyundai.

I hope that Japanese Prime Minister Kan read this interview with Ambassador Muto.  Seriously joining the TPP would be an expression of vitality which would help Japanese business.  Unfortunately, involving Japan in the TPP talks would be the perfect way to bog them down in tiresome protectionist antics.



Korea to infuse vitality into G20 Summit, The Korea Times